Is GitLab ($GTLB) Overvalued or a Hidden Tech Gem? Pre-Earnings Breakdown

GitLab ($GTLB) has its earnings report coming up on December 5, 2024, and I’ve been looking into whether it’s a good buy or not. They’re a big name in DevSecOps—basically, they make life easier for developers by putting coding, security, and deployment tools all in one place. Sounds cool, right? But let’s dig into the numbers and what’s happening with the stock.

What Does GitLab Do?

GitLab offers a single platform for developers to do it all—code, secure, and deploy their software. It’s efficient, cuts down on tool-switching, and companies seem to like it because it saves time and helps teams collaborate better.

If you’re interested in other tech stocks that are making waves, check out my blog on SentinelOne ($S) and its growth potential.

How Has GitLab Been Performing Financially?

The numbers are solid. Last quarter, they pulled in $182.6M in revenue, which was up 31% compared to the same time last year. Their adjusted EPS was $0.15, beating analyst estimates by $0.05. They’ve also raised their guidance for the year, now expecting $742M–$744M in revenue and EPS of $0.45–$0.47. Free cash flow turned positive at $33M last quarter, marking a major improvement from earlier losses.

Looking for stocks with similar financial turnarounds? Read my analysis of High Tide ($HITI) and its key risks and opportunities.

Is GitLab Growing Faster Than Its Competitors?

If you’re into growth, GitLab’s got it. Their revenue has grown at a compound annual growth rate (CAGR) of 51.5% over the last three years. For context, the industry average is around 18%. That’s a pretty big gap, and it shows they’re onto something.

For comparison, you might want to explore how TeraWulf’s AI and crypto moves are positioning it for growth.

What Are Analysts Saying About GitLab Stock?

Analysts seem optimistic. About 88% of them have a “Buy” rating, and there are no “Sell” ratings. The average price target is $67, which is a little above the current trading price of ~$61. Recently, KeyCorp even bumped their target up to $74, so there’s definitely confidence in the stock.

Why Is GitLab’s Valuation a Concern?

This is where things get a bit tricky. GitLab’s price-to-sales (P/S) ratio is 14, compared to the industry average of around 9. That’s high. When you pay that kind of premium, the company has to perform perfectly to justify the price. If growth slows or they miss expectations, things could get rough.

For more on how valuation concerns can impact stock performance, check out my recent piece on the biggest stock losers of November 2024.

Who Are GitLab’s Biggest Competitors?

GitLab isn’t operating in a vacuum. They’re up against heavyweights like Microsoft (GitHub) and Atlassian. These are companies with huge resources and established market positions. GitLab’s platform is solid, but standing out in this space is tough.

If competition interests you, take a look at SMCI and whether it’s a good buy despite delisting concerns.

Is Insider Selling a Red Flag?

Recently, GitLab’s CEO sold about 85,000 shares, and the CFO sold stock worth nearly $945,000. Insider selling isn’t always bad—it could just be personal financial stuff—but it’s something to keep in mind, especially if you’re already cautious about the valuation.

How Does the Software Industry Look Right Now?

The software industry is a mixed bag. Economic conditions have tightened IT budgets overall, but niches like AI and DevSecOps are still growing. GitLab is lucky to be in one of the better-performing segments, but it doesn’t mean they’re immune to the broader challenges.

What Should Investors Watch in the Next Earnings Report?

For me, forward guidance is going to be more important than whether they beat earnings. Are they still growing at the same pace? Are margins improving? How are they holding up against competition? These are the questions I’ll be looking for answers to.

Is GitLab Stock a Buy in December 2024?

GitLab has a lot going for it—strong revenue growth, AI integration, and improving cash flow. But it’s not cheap, and the competition is fierce. If they beat earnings and offer strong guidance, I think the stock could see a nice bump. But if there’s even a small miss, the high valuation might cause a drop.

Personally, I’m holding off for now. I want to see how the market reacts to the earnings report and whether their growth story holds up. If the stock dips or if their next report shows even stronger growth, I might reconsider.

What about you? Is $GTLB on your list, or are you holding off for now?

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